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Many of our nonprofit accounting users have found automating processes with workflow management helps them be more efficient and cuts down on paper use.

According to Jerry McGlaughlin, Senior Director of Information Technology Services Planning and Business Management at the American Psychological Association (APA), the IT team knows that after implementing Serenic Navigator, the organization as a whole has a better, up-to-date grasp of its finances, and Serenic Navigator’s built-in workflows are having a big impact. Read more…

Nonprofits are dedicated to pursuing altruistic missions aimed at serving the public, but that doesn’t stop many from falling victim to common accounting mistakes. According to a 2013 study by Jeffrey J. Burks at the University of Notre Dame, nonprofit organizations make almost twice as many accounting errors as for-profit companies of similar size.

Easily avoided mistakes (such as data entry errors) can derail an entire nonprofit’s mission. An improperly categorized expense or a mismanaged account may attract attention from the IRS and cause donors to lose trust in your organization.

Here’s a list of some of the most common nonprofit accounting mistakes, along with some pointers on how to avoid them.

Data Entry Errors

A misplaced zero can wreak havoc on a financial report. Small errors have a way of coming back to bite you, so make sure every entry is double checked every time. Compare accounts with bank statements and maintain the utmost attention to detail, even if you are using accounting software that does many operations automatically.

Failure to Follow Appropriate Accounting Procedures

Every nonprofit organization, big or small, should have clear and effective accounting procedures that all employees are required to follow to the letter. If any procedures are ignored or followed improperly, it can confuse the IRS and set you up for an audit.

For instance, implementing a single platform for your nonprofit accounting software with automated workflows can ensure that policies on purchasing and expense processing are enforced, while maintaining audit trails.

Lack of a Complete Review Process

Without a robust review process, it’s easier for small mistakes to fall through the cracks. Make sure every accounting transaction is reviewed by a second pair of eyes at the very least.

Relying on Volunteers and Untrained Personnel

Budgeting restrictions can make it difficult to hire professional staff for your nonprofit organization, but accounting is one of the areas where you shouldn’t rely on volunteers or untrained personnel.

Accurate and complete accounting from a professional accountant helps you avoid costly errors. It will also help your fundraising efforts, since donors will be more likely to trust you when you have professional and accurate financial reporting in place.

Improper Categorization of Revenues and Expenses

Unless you categorize every single source of revenue and every expense, it’s difficult to determine how donations and grants are being used. Many donations are restricted, which means they have to be used in for specific purposes. Categorizing all revenues and expenses allows you to show a complete paper trail for all money flowing through your organization.

Losing Track of Petty Cash

For most nonprofit organizations, having some cash on hand is necessary when small expenses pop up (such as buying office supplies as the need arises). However, a petty cash fund needs to be as meticulously monitored as any other expense.

Make sure only a few employees have access to petty cash, that it’s under lock and key at all times, and that you keep receipts for all transactions.

When you avoid simple accounting errors, you help your nonprofit achieve these three objectives: save time and money, help build a relationship of trust with donors, and give managers and board members the information they need to make strategic decisions.

Of course, the ultimate goal is to achieve your organization’s mission, and that is what nonprofit accounting is all about.

The finances of a nonprofit organization can range in complexity from simple donations-based accounting to an organization that uses many grants and government funding.

Determining who should have access to financial information within your nonprofit organization depends largely on how complex your financing is, but three basic financial functions should always be present: clerical, operational, and strategic. As long as you have staff for all three of these functions, you should be able to have adequate control over your nonprofit’s finances.

Clerical Support Staff

Your nonprofit should have people who handle the organizational and clerical aspects of accounting. Basically, clerical staff assists by filing, copying, and making deposits. They provide support and take care of much of the mundane tasks necessary for meticulous bookkeeping. Only a basic knowledge of accounting principles is required, but attention to detail is crucial.

Operational Staff

Operational staff takes care of a wider range of functions, including compiling financial statements and paying bills. This requires a greater understanding of nonprofit accounting, and therefore staff should have relevant experience managing grants and working for nonprofits.

Strategic Staff

Finally, strategic staff will guide the development of your nonprofit’s financial goals. This will include analytics and planning, and would require a high level of knowledge and skills about accounting and many years of experience.

It’s possible to cover all three of these areas without hiring a large full-time staff. Many smaller nonprofits will hire financial consultants to work on a part-time basis. You can also use accounting software, which takes much of the burden off of the clerical and operational staff, as well as helping with the analytics and planning of the strategic staff.

Whether your staff is large or small, your finances need to be clearly mapped out. Executives must have complete control over the financial functions of the organization. The people who have access to financial information within your organization should be part of your overall accounting strategy, either working in the clerical, operational, or strategic functions.

Every day, I speak with nonprofit organizations about their processes, their challenges, and their complaints as they navigate the complex world that is fund accounting. I hear them, but some days I worry that I’m not really listening. It’s a challenge that I think we all face at one time or another – conflicting priorities, repeated conversations, focusing on the negatives, all conspiring to allow people’s words to swirl around us without truly finding fertile ground.

When your job is to really listen to what the client or prospect is telling you, not just hear the words but actually listen to the underlying challenges and find solutions … well, you can’t tune out. And it’s something I’m passionate about – our clients are passionate about helping others according to their mission, while I’m passionate about helping them.

The most enjoyable time in my job is that point when I find a solution in my software that will save a client time or money, or both. When they make that connection between what Serenic Navigator Express or Essentials can do and what they’ve been trying to do in an accounting program designed for for-profit organizations or with Excel spreadsheets. Or when we design new accounting software features as we’ve been doing for the last several months.

Recently, we were working closely with several clients, talking about the tasks that were taking their time and the difficulties they were having. And from those conversations, we’ve added a memorized reporting feature that will help our clients every single day, one that will make the software even more useful to power users and casual users, alike. We designed it over a matter of days and with the power of a cloud solution, our clients were using it within a week.

Other features include expanding the power of nonprofit reporting with columns that filter by both different dates and account ranges.

And I got to feel that feeling, when I know that I’ve not just heard my clients, but actually listened to what they need and translated that into business requirements and computer code.

If you want to ramp up your financial reporting system, or are thinking of upgrading, do your homework! Be sure to talk to current users, ask peer organizations what they are using, and consult with your auditor. Make sure that any system you invest in has at least the following capabilities, and that those capabilities can be used easily.

Meets all the reporting requirements of the IRS 990, 990N, and 990T. No sense in not being able to turn these documents out easily. The same caution goes for your state reporting.

Can provide the needed information to your auditor. The less time the auditors have to spend digging out what they need, the lower your audit bill should be.

Can report flexibly to different audiences. Most board members don’t want to dig through a 20 page printout. Most staff don’t need to. The ability to differentiate is key. Also, graphs and charts are really important for some users. This capability should be built in, and not require exporting to a spreadsheet.

Can report in real time. Waiting to the end of the month is just so….last century, and can leave you wanting at times when you need to decide now.

Can back out cost shifting. You need to make your resource allocation decisions based on real data. And, cost shifting situations can, over time, get so complicated, that you do not want to require some poor staff person to do this by hand.

Can generate reports for online review. Mostly this means that the reporting system can develop documents in .pdf format, but check with your webmaster to make sure that this is easy, and easily updated. If you have a board portal on your website and can integrate the financial reporting with that, all the better.

Can easily integrate with other database and reporting systems. For example, your financial system should be able to connect seamlessly with your grant management and donor tracking system.

Good financial reporting is a key part of good stewardship. More than ever it is essential to have the ability to be responsive to financial inquiry, whether from inside or outside your nonprofit. Make sure you have the right tool for the job.